Fletcher Building starts new year with improved profits, margins

Tuesday, 10 November 2020

Fletcher Building said profit improved in the early part of its current financial year as increased efficiency boosted its margins. The shares jumped 11 per cent.

Pre-tax profit rose 55 per cent to $227 million in the four months to the end of October, the company said. The figures exclude one-time items following the building company’s restructuring.

Fletcher Building took a financial hit in the year to June 30, posting a $196m loss after it restructured its business to lower its cost base, reducing staff, products and facilities as it downsized to be able to cope with disruptions caused by Covid-19.

“We were heavily impacted in the 2020 financial year by the Covid-19 restrictions, resulting in a significant earnings loss for the group of $196m, so we are pleased to have begun the new year well,” said chief executive Ross Taylor.

* Fletcher Building expects $196m net loss because of Covid-19

Fletcher Building chief executive Ross Taylor is pleased to have begun the new year well.

* Fletcher proposes 'massive' pay cuts in 12-week plan

Fletcher Building undertook significant cost-saving measures in the wake of coronavirus.

In the first four months of the current financial year, profit margins lifted to 8.4 per cent from 5.5 per cent, reflecting the operational performance and efficiency programmes implemented over the last two years, he said.

The building company’s shares rose 50 cents to $5 following the announcement on Tuesday morning.

Fletcher Building is the country’s largest integrated manufacturer and distributor of building supplies.

Taylor said its customers expect volumes to remain at current levels through to the start of the next calendar year. However, there is uncertainty in the second half of the financial year, with the impact of broader macro-economic factors on markets in New Zealand and Australia not yet clear, and December and January are always lower trading and earnings months for the group, he said.

In the first four months of the year, revenue rose 1 per cent to $2.698 billion, which Taylor said was supported by resilient trading conditions in both New Zealand and Australia, especially in the residential sector.

Revenue in its core New Zealand division rose 4 per cent to $1.327b, with businesses exposed to finishing trades particularly resilient.

Demand for new houses was robust, with 342 units taken to profit in its residential business, consistent with the company’s aim to achieve between 700 and 800 house sales for the full year.

Profit before tax for its core New Zealand business rose 30 per cent to $158m, led by a 32 per cent increase in concrete profit to $43m and a 32 per cent gain in building products profit to $72m.

Residential and development profit doubled to $43m due to strong house sales, and planned land developments remain on track for completion this financial year.

Australian profit jumped 65 per cent to $39m as cost-cutting offset lower overall revenue.

Corporate costs dropped 15 per cent to $16m.

Taylor said the company’s cash flows and the balance sheet remain strong, with net debt at $388m and available liquidity of $1.4b at October 31.

The company will update shareholders on its expectations for first-half profit at the annual meeting on November 25. Further updates will be provided when the company releases its first-half results on February 17, and at its investor day in May 2021.